Makhlouf: Financial system risks demand policy evolution
Gabriel Makhlouf, Governor of the Central Bank of Ireland (CBI), stressed the need for macroprudential policy to continuously evolve with the rapidly changing financial system. Speaking at the 10th Annual Macroprudential Conference, he highlighted emerging risks in non-bank finance and digital currencies.
Purpose endures, frameworks must adapt
Since its inception in 2015, macroprudential policy has aimed to protect society from financial instability, a purpose that remains constant despite significant changes in the financial system.
Governor Makhlouf highlighted Ireland's framework, introduced over ten years ago, which includes borrower-based measures, bank capital buffers, and non-bank finance policies.
These measures are designed to reduce shock amplification and ensure essential services continue during crises, rather than preventing all risk-taking.
While the discipline has matured, Makhlouf cautioned, "But maturity must not mean complacency.
The financial system is changing quickly, and our frameworks must continue to evolve with it.
" He noted the conference's diverse agenda, covering topics from bank supervision to cryptocurrencies, as evidence of this ongoing transformation.
Blurring lines, new risk channels
The financial system's evolving nature means risks can emerge in new places and propagate through new channels with greater speed.
Makhlouf referenced the Silicon Valley Bank failure as a reminder that vulnerabilities can build beneath reassuring indicators, underscoring the challenge of identifying risks before they crystallize.
Traditional financial policy boundaries are blurring, with risks moving between banks and non-banks, across markets and jurisdictions, and into digital finance.
Understanding these connections, including network effects and amplification, requires robust data, sound models, and effective supervision.
Innovation and risk-taking are vital, but resilience must be maintained.
Research and cooperation are key
Research is central to ensuring the financial system remains resilient amidst change.
Makhlouf emphasized that no central bank can address these complex, global vulnerabilities alone, necessitating shared standards, comparable data, and mutual trust.
The CBI's Research Exchange Program exemplifies this commitment, fostering cooperation between policymakers and academia to build a more shock-absorbing financial system.